The Administration supports H.R. 5173's goals of reducing the Nation's
public debt and establishing a Social Security and Medicare Lockbox.
Indeed, debt held by the public has been reduced by more than $300 billion
since 1997, including an estimated $220 billion in the current fiscal year
alone. The Administration has also called for passage of Social Security
and Medicare lockbox legislation. Nevertheless, the Administration does
have some concerns about how the legislation seeks to achieve these
important goals.

Earlier this year, the President proposed policies to eliminate the public
debt by 2012. Those proposals would have used the entire off-budget
surplus and portions of the on-budget surplus to reduce the debt throughout
the next decade. Unfortunately, Congress instead pursued a series of
costly tax proposals that, taken together, would drain away the Nation's
hard-earned budget surplus -- risking a return to deficit spending and
leaving no on-budget resources to extend the life of Social Security or
Medicare, invest in education, or pay down the national debt. The
Administration is pleased that Congress is currently reversing course and
rejecting those explosive tax cuts by focusing on debt reduction, at least
for one year, but regrets that the Congress has not worked with the
Administration to craft a long-term framework to safeguard the Nation's
financial future.

The Administration is pleased that the legislation moves in the direction
of the Vice President's recent proposal to take Medicare off-budget by
creating parallel lockboxes for both Social Security and Medicare.
However, H.R. 5173 could be stronger if it followed this proposal and took
the further step of truly placing Medicare off-budget, the same treatment
currently provided by law to Social Security.

The Administration also has some technical concerns about the workability
and effectiveness of the legislation's enforcement provisions. In
particular, the Administration believes the legislation would be stronger
if it excluded its "trap door" loophole that could allow the trust fund
surpluses to be used to finance proposals that could threaten fiscal
discipline and the Nation's ability to pay future Social Security and
Medicare benefits. The Administration also believes the legislation should
be strengthened to reduce potential complications in managing
macroeconomic policy during an economic downturn.

Finally, the debt reduction mechanism in H.R. 5173 would not actually
reduce debt held by the public. Presently, every dollar that is not spent
is used to reduce the public debt even if that dollar is not channeled
through the new debt reduction account created in this bill. Since the
legislation would have no impact on Federal spending or revenues, public
debt levels would not be reduced under the bill. Furthermore, the
Administration is concerned that the bill's attempt to use the debt limit
to force a specific action, even one as salutary as debt reduction, is
inappropriate and sets a disturbing precedent.